U.S. economic outlook brightens as retail sales rise

Pat Wellenbach, Associated PressA shopper carries bags of merchandise last month in Freeport, Maine. U.S. retail sales rose at a solid pace in March 2012, as a healthier job market encouraged more consumers to shop, the Commerce Department said Monday.

WASHINGTON --
Americans bought more electronics, started home improvement projects and
updated their wardrobes last month, inspired by warmer weather and a
healthier job market.

U.S. retail sales rose 0.8 percent in March, the Commerce Department said Friday.

The
increase capped a strong quarter of gains and contributed to a brighter
outlook among economists for growth in the January-March quarter. Businesses are responding by restocking their shelves at a steady pace, a sign that they expect the trend to carry over into the spring.

More
retail spending also helped offset a decline in confidence among
homebuilders. And it could ease concerns about March hiring, which
slowed to half the pace of the previous three months.

"Retail
sales soared in March with stores in just about every category recording
sharp increases over February levels," said Joel Naroff, chief
economist at Naroff Economic Advisors. "And let's not forget, the
February spending was strong."

Larger stockpiles require businesses to order more goods. That leads to more factory production, which boosts growth.

And
overall sales -- which includes wholesalers and manufacturers as well as
retailers -- grew 0.7 percent, more than inventories. That's a good sign
because it is evidence that companies aren't building too much
inventory, which can lead to production cutbacks.

James Marple, an
economist at TD Bank, forecasts the economy expanded by about 2.7
percent at an annual pace in the January-March quarter. That's a full
point higher than his estimate a month ago.

Still, the housing market has struggled to gain momentum.

The
National Association of Home Builders/Wells Fargo said Monday that its
builder sentiment index fell for the first time in seven months.

Builders also expressed weaker confidence in sales over the next six months.

"What
we're seeing is essentially a pause in what had been a fairly rapid
build-up in builder confidence that started last September," said David
Crowe, chief economist with the homebuilders' group. "This is partly
because interest expressed by buyers in the past few months has yet to
translate into expected sales activity."

Also, an index measuring
manufacturing activity in New York fell to its lowest level in five
months. The New York Federal Reserve Bank's Empire State survey fell to
6.6 in April from 20.2 in the previous month.

Many economists
cautioned that warm weather likely contributed to the rise in retail
sales. More job gains and greater income growth is needed to sustain
spending.

"There's a limit to how much people can dip into savings
to finance consumption," said Neil Dutta, an economist at Bank of
America Merrill Lynch.

Americans are more confident in the economy
after seeing hiring strengthen this winter. Job gains averaged 246,000
per month from December through February. Hiring slowed to half that
pace in March, although economists have suggested the lull may be
temporary.

More hiring has helped lower the unemployment rate from
9.1 percent in August to 8.2 percent in March. Still, the stronger
hiring hasn't translated into higher salaries. Americans' pay isn't
keeping pace with inflation. That, along with higher gas prices, could
restrain consumer spending later this year.

Gas prices rose more
slowly last month, according to a separate report released last week.
And in the last two weeks, they are showing signs of leveling off. That
may also be giving consumers more incentive to spend.

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